Discussion on Volume, UrmaBlume Wanted

[Predictor 11]

UB, I've been reading all your posts and find them interesting. In one example, you said something like

 

Point A

"the big traders go to market they don't use limit and they have a certain PRICE RANGE where they want to get filled"

 

And then from what I gather your approach is based mostly on trade volume and balance. There is an obvious paradox in this view.

 

 

The first initial/biggest trader must be doing something other then watching for big trader volume. He must be coming into market with a preset PRICE range or some other idea.

 

Point B

The next question is, are the biggest traders any good? In general, the best traders are only able to do 30% year at a 1:1 risk reward. The next question is if you copied the big trader would you get a better, no difference, or worse trades?

 

Argument 1: Worse

The biggest traders is in first and will get the best fill. You will lose a haircut in every case. So you will perform worse.

 

Argument 2: Better

It is hard to argue that you can do better given your signals are always after the big traders. You can only hope to do better if you get filled before his order is completed. He thus pays you the haircut.

 

Argument 3: A wash

-----------

 

I am very interested in learning more about volume and what others think.

 

I think this is a good paradox though because if all the big traders were just looking at volume then the very biggest trader must be looking at something else because he would have no volume to go by. You spoke of a price range and this makes sense that he might come in at a certain price level or based on a fundamental event. The "locals" just produce the trade between the levels. This seems to fit well with market profile theory.

 

The question is, how does he know the price level?

[UrmaBlume 10]

To work down to the answer to your question of "The question is, how does he know the price level?" we must first define the main market participants, their volume of trade and their impact on price.

 

In markets like ES and to some degree in most US equities most of the actural trade volume is done by traders who both enter and close their positions during the same session. This group includes retail traders, what used to be called "locals," commercial scalpers and the HFT group. While they, collectively, do up to 80% of the total volume, their impact on price in minimal. They merely run price up to and down to the waiting longer term, value trader or strong commercial operator.

 

While this participant usually is responsible for only 20% of total volume, he is the player responsible for the establishment of many if not most session highs and lows. He is able to form these extremes because at the moment his, mostly machine placed, orders are bigger that the market and stronger than the momentum that brought price to that level.

 

At the moment price runs into this immoveable force the intensity and the velocity of trade show big spikes. The measurements required to record/demonstrate these spikes must be taken in the millisecond time frame. In the ES these spikes can often reflect a rate of trade of over 300k contracts per minute. That doesn't mean that 300k contracts traded, it means that for a few seconds or parts of a second it traded at that velocity of trade.

 

The last four days of trade in ES have demonstrated such spikes at one extreme or the other and ther are shown below.

 

Of particular note is that value/longer term/value buyers are not usually present in the same session as longer term/value sellers and vice versa. During the last 4 days this traders was only present on one of the 2 session extremes and that was the sentiment that dominated the trade for the session.

 

The first graph shows yesterday's high and the presence of this spike and the stronger value trader on the high and not the low and it was a very strong down day. The 26th was another strong down day and again these spike appeard on the the high and not the low. On the 25 we had a day with a mostly up sentiment and he was on the low as the chart shows. The 22nd was a reversal day up with both the open and the close near the high and again these spikes were on the low. The dates are on the charts below which you can clidk to enlarge and the times are PST.

 

We use only volume charts and ignore price based indicators. The indicators that help us spot these extremes are a part of this package and you can download the manual for these indicators here.

 

The answer is that he knows the prce from models that input both fundamental and technical market data and acts accordingly.

 

Just click on the image to enlarge to read text and dates

 

 

 

 

 

cheers

 

UB

Edited July 28, 2011 by UrmaBlume

[Predictor 11]

Let's think about the market maker.. do the bank generally "scalp" a position intraday and then get loaded on one side while making market?

 

market is going down.. do they start to buy and load inventory.. If so then when price goes back to support (break even or profit for them) then they start to unload their inventory

 

Or do they keep a constant order book? and take losses throughout day

[UrmaBlume 10]

Let's think about the market maker.. do the bank generally "scalp" a position intraday and then get loaded on one side while making market?market is going down.. do they start to buy and load inventory.. If so then when price goes back to support (break even or profit for them) then they start to unload their inventoryOr do they keep a constant order book? and take losses throughout day

 

The point is, as demonstrated above, that it doesn't matter what the market maker does, it doesn't matter what the public does, it doesn't matter what the HFT operator does. What matters is what the participant that drives price does.

 

Both the pulic and the market maker never lead price, never turn price they only chase price and the longer time frame/value operator is almost always ahead of price because it is his action that so often turns price.

 

UB

[clmacdougall 11]

To work down to the answer to your question of "The question is, how does he know the price level?" we must first define the main market participants, their volume of trade and their impact on price.

 

In markets like ES and to some degree in most US equities most of the actural trade volume is done by traders who both enter and close their positions during the same session. This group includes retail traders, what used to be called "locals," commercial scalpers and the HFT group. While they, collectively, do up to 80% of the total volume, their impact on price in minimal. They merely run price up to and down to the waiting longer term, value trader or strong commercial operator.

 

While this participant usually is responsible for only 20% of total volume, he is the player responsible for the establishment of many if not most session highs and lows. He is able to form these extremes because at the moment his, mostly machine placed, orders are bigger that the market and stronger than the momentum that brought price to that level.

 

At the moment price runs into this immoveable force the intensity and the velocity of trade show big spikes. The measurements required to record/demonstrate these spikes must be taken in the millisecond time frame. In the ES these spikes can often reflect a rate of trade of over 300k contracts per minute. That doesn't mean that 300k contracts traded, it means that for a few seconds or parts of a second it traded at that velocity of trade.

 

The last four days of trade in ES have demonstrated such spikes at one extreme or the other and ther are shown below.

 

Of particular note is that value/longer term/value buyers are not usually present in the same session as longer term/value sellers and vice versa. During the last 4 days this traders was only present on one of the 2 session extremes and that was the sentiment that dominated the trade for the session.

 

The first graph shows yesterday's high and the presence of this spike and the stronger value trader on the high and not the low and it was a very strong down day. The 26th was another strong down day and again these spike appeard on the the high and not the low. On the 25 we had a day with a mostly up sentiment and he was on the low as the chart shows. The 22nd was a reversal day up with both the open and the close near the high and again these spikes were on the low. The dates are on the charts below which you can clidk to enlarge and the times are PST.

 

We use only volume charts and ignore price based indicators. The indicators that help us spot these extremes are a part of this package and you can download the manual for these indicators here.

 

The answer is that he knows the prce from models that input both fundamental and technical market data and acts accordingly.

 

Just click on the image to enlarge to read text and dates

 

 

 

 

 

cheers

 

UB

 

Your judgement of "immovability," without the actual trading of numerous contracts must have required a type and speed of trade that fits a proxy description for the potential of such trade. Is it ever solely reflected in an amount of volume or is that never the case. Thanks so much for the insight, I'm a grateful student.

Cory

[UrmaBlume 10]

Your judgement of "immovability," without the actual trading of numerous contracts must have required a type and speed of trade that fits a proxy description for the potential of such trade. Is it ever solely reflected in an amount of volume or is that never the case. Thanks so much for the insight, I'm a grateful student.

Cory

 

Cory,

 

Thanks for the very kind words.

 

You have made a very perceptive observation about the dynamics of the formation of session extremes.

 

As we described below - trade consists of a diverse brew of participants, motives and methods. Discovering the trade that forms these extremes is not just about either volume or velocity it is also about detecting certain ratios of the mix of buy/sell/limit/mkt orders that combine in the millisecond time frame to establish these session extremes and that these special indicators detect.

 

Thanks again Cory.

 

cheers

 

pat

 

To work down to the answer to your question of "The question is, how does he know the price level?" we must first define the main market participants, their volume of trade and their impact on price.

 

In markets like ES and to some degree in most US equities most of the actural trade volume is done by traders who both enter and close their positions during the same session. This group includes retail traders, what used to be called "locals," commercial scalpers and the HFT group. While they, collectively, do up to 80% of the total volume, their impact on price in minimal. They merely run price up to and down to the waiting longer term, value trader or strong commercial operator.

 

While this participant usually is responsible for only 20% of total volume, he is the player responsible for the establishment of many if not most session highs and lows. He is able to form these extremes because at the moment his, mostly machine placed, orders are bigger that the market and stronger than the momentum that brought price to that level.

 

At the moment price runs into this immoveable force the intensity and the velocity of trade show big spikes. The measurements required to record/demonstrate these spikes must be taken in the millisecond time frame. In the ES these spikes can often reflect a rate of trade of over 300k contracts per minute. That doesn't mean that 300k contracts traded, it means that for a few seconds or parts of a second it traded at that velocity of trade.

 

The last four days of trade in ES have demonstrated such spikes at one extreme or the other and ther are shown below.

 

Of particular note is that value/longer term/value buyers are not usually present in the same session as longer term/value sellers and vice versa. During the last 4 days this traders was only present on one of the 2 session extremes and that was the sentiment that dominated the trade for the session.

 

The first graph shows yesterday's high and the presence of this spike and the stronger value trader on the high and not the low and it was a very strong down day. The 26th was another strong down day and again these spike appeard on the the high and not the low. On the 25 we had a day with a mostly up sentiment and he was on the low as the chart shows. The 22nd was a reversal day up with both the open and the close near the high and again these spikes were on the low. The dates are on the charts below which you can clidk to enlarge and the times are PST.

 

We use only volume charts and ignore price based indicators. The indicators that help us spot these extremes are a part of this package and you can download the manual for these indicators here.

 

The answer is that he knows the prce from models that input both fundamental and technical market data and acts accordingly.

 

Just click on the image to enlarge to read text and dates

 

 

 

 

 

cheers

 

UB

[clmacdougall 11]

UB, in your opinion is there anything worthwhile to follow beyond trying to define the intraday extremes of price activity by identifying the "commercial trader" entering the market?

Is that your bread and butter, or do you trade if price is moving against the extreme? I guess what I'm trying to say is do you trust anything other than the extreme as having predictive ability for a profitable trade?

[UrmaBlume 10]

UB, in your opinion is there anything worthwhile to follow beyond trying to define the intraday extremes of price activity by identifying the "commercial trader" entering the market?

Is that your bread and butter, or do you trade if price is moving against the extreme? I guess what I'm trying to say is do you trust anything other than the extreme as having predictive ability for a profitable trade?

 

Yes indeed. The Indicator Pack I mentioned supports both reversal and continuation trades.

 

But, with regard to extremes and reversals, it is noteworthy that today is the third day in a row where the commercial longer term/value trader has been active on the highs with a very strong negative effect on price.

 

The charts below, again, show the divergence in the higher time frame and the topping spikes w/divergence in the micro time frame.

 

Note the very strong activity at today's highs:

 

Just click to enlarge the charts to read text or dates/times PST

 

 

cheers

 

pat

[Predictor 11]

Okay here is what I'm getting at.. if the OTP (other time frame participant) must have some predetermined method for entering the market and it seems sense to keep aware of what he may be using which may be trend lines, previous highs/lows, or mathematical probabilities that bounce price.

 

Today he came in at the previous value/low of yesterday. So, it would make sense to watch for that.

 

Also, I'm not convinced that this is OTP that is driving down prices or up prices. He doesn't have that motivation.

 

In futures, we (traders) bull the prices up until we can't. This would explain why the highs are marked with buying and not selling delta. I'm starting to think it is not the OTP but the locals that are bulling price up to his LIMIT level.

 

When they detect he starts to sell then they start run it in front of him.

 

The locals drive price up/down to previous value and then when they detect resistance they exit.. with no more "big bullying" locals to drive price, it goes back to where started.

 

Think about it, a big trader is at 1313 and wants to sell. Why would he flood the market with sell orders to drive price down? He wouldn't. He'd use his limits.

 

The locals bull into his limits. If they can't bust through then they start to sell out and that starts to snowball as late comers also sell out.. now maybe the big trader at 1313 also sees this and starts to try to sell but he can't because the locals are drive price down.

 

This seems to explain also the auction market process.. i.e the price is not mean reverting except as defined on certain time frames.

 

But also this could be explained by the news today and loss of confidence.

[UrmaBlume 10]

From reading all of this and from reading the post below - I can only say that, maybe, and with all due respect, you are overthinking it.

 

If we must get mystical - think that out there - where price is not - there is a force stonger than local trade or retail traders' 2 lots and that as soon as they get price anywhere near his sweet spot - he strikes and drives price THROUGH all of them to new profitable extremes (for him).

 

This has happened on at least one extreme on most days for years - here is today. What more do you need?

 

click to enlarge image

 

 

cheers

 

UrmaBlume

 

 

Okay here is what I'm getting at.. if the OTP (other time frame participant) must have some predetermined method for entering the market and it seems sense to keep aware of what he may be using which may be trend lines, previous highs/lows, or mathematical probabilities that bounce price.Today he came in at the previous value/low of yesterday. So, it would make sense to watch for that.Also, I'm not convinced that this is OTP that is driving down prices or up prices. He doesn't have that motivation.n futures, we (traders) bull the prices up until we can't. This would explain why the highs are marked with buying and not selling delta. I'm starting to think it is not the OTP but the locals that are bulling price up to his LIMIT level.When they detect he starts to sell then they start run it in front of him. The locals drive price up/down to previous value and then when they detect resistance they exit.. with no more "big bullying" locals to drive price, it goes back to where started.Think about it, a big trader is at 1313 and wants to sell. Why would he flood the market with sell orders to drive price down? He wouldn't. He'd use his limits.The locals bull into his limits. If they can't bust through then they start to sell out and that starts to snowball as late comers also sell out.. now maybe the big trader at 1313 also sees this and starts to try to sell but he can't because the locals are drive price down.This seems to explain also the auction market process.. i.e the price is not mean reverting except as defined on certain time frames.But also this could be explained by the news today and loss of confidence.

[Predictor 11]

Urma.. it looks like the VOLUME is positive on the extreme flurry. Right, if you are a big trader you DON'T want to move price. You are entering based on some reason you think price will move. If you are the reason that price moves then you can't profit.

 

The way I see it is that the locals and sometimes retailers are driving price to the other-time-frame-participant.

 

If the locals are doing the market orders then this explains also why they are on the wrong side. The big trader has its limits there. He wants to get filled at his level. The locals are driving into him with markets. When the momentum goes out then they start to get scared/retreat.

 

It is not just volume that drives price but confidence. Now I'm telling you something quite valuable. Today, the undecided debt issue was the confidence factor that turned the market.

 

You show when your indicator works but most indicators only work about 50% of time. Do you have a system that auto trades on that and would yo be willing to share its stats?

 

Also, I see 2 failed signals on that chart if I'm reading it right. Also what datafeed do I need to use this? I have tradestation.

[UrmaBlume 10]

Urma.. it looks like the VOLUME is positive on the extreme flurry. Right, if you are a big trader you DON'T want to move price. You are entering based on some reason you think price will move. If you are the reason that price moves then you can't profit.

 

The way I see it is that the locals and sometimes retailers are driving price to the other-time-frame-participant.

 

.

 

Exactly and it is demonstrated every day.

 

As to news forget it, you don't need it. Understanding and the money behind it will always have the dominant position and they, mostly, can't hide the fact of their transactions.

 

We scan 400 stocks and 35 commodities every day for out of sequence volume (which take out of sequence money commitment) and out of sequence price volatility which takes very imbalanced trade and make those scans available to the public here.

 

The point here is that you want to know more when there is unusual volume or local price volatility that is not associated with news that when it is. Somebody always seems to know and if you can track their transactions they you, in essence, know what they do.

 

cheers

 

UrmaBlume

[joshdance 10]

The way I see it is that the locals

 

Which locals are you referring to? Last I checked, on the CME, open outcry volume was less than 10% of all trading, 90% coming through globex. And since you're looking at ES in these charts, there are no "locals" as far as I know. Perhaps I'm misunderstanding.

[clmacdougall 11]

UB, does an amount of imbalance ever lead to a predictable amount of price movement? Is there ever a range of movement that is predictable after a degree of immovability is met? Thanks

[UrmaBlume 10]

UB, does an amount of imbalance ever lead to a predictable amount of price movement? Is there ever a range of movement that is predictable after a degree of immovability is met? Thanks

 

We have been working on this and other issues under the topic of "The Physics of Price Movement." One thing we have discovered is that the amount of divergence in Net New Trade is often indicative the magnitude of the move to come.

 

Over the next couple of days I will be posting an article and a video article about the power of volume/order flow based divergences as opposed to time/price based divergences when trying to locate extremes in real time..

 

cheers

 

pat

[clmacdougall 11]

Thanks, I can't wait!

[SIUYA 11]

The point here is that you want to know more when there is unusual volume or local price volatility that is not associated with news that when it is. Somebody always seems to know and if you can track their transactions they you, in essence, know what they do.

 

 

unfortunately in the share market this is usually associated with Insider trading or market leaks, and you can see it on many, many daily charts as well just before good news often....volume spikes or unusual trading before the news...rumours have a way of leaking

It seems bad news is rarely leaked - maybe as most participants are long only in the share market.

[clmacdougall 11]

Man, I don't know about you guys, but I'm seeing a huge divergence to the downside, I'll bet it will move price down pretty dramatically. Anybody else seeing anything? presently the ES is at 1170.00 at 07:56:00 CST.

[clmacdougall 11]

Well it dropped 7.50 pts before reversing past my call point. Starting to see things in a new light. Thanks UB.

[clmacdougall 11]

This thing sure looks like it's going to unwind to the downside. Anybody? It's at 1170.00 again at 08:59:00.

[UrmaBlume 10]

Well it dropped 7.50 pts before reversing past my call point. Starting to see things in a new light. Thanks UB.

 

My pleasure.

 

There will be a Webinar on "Trading the Extremes" on Tuesday 08/09 at 0830 PST - registration opens at 0800 PST - limited to first 100. Plenty of time to "Ask Urma" after 15-20 minute presentation on how to locate local and session highs and lows using order flow and locating intense commercial activity http://bit.ly/n9XF9D

 

cheers

 

pat

[clmacdougall 11]

Pat, I'm on my knees begging you to please start this meeting 2-3 hours after the markets have closed. I've got to work tomorrow and would die just thinking about missing that meeting. Is there anyway?

[clmacdougall 11]

This thing sure looks like it's going to unwind to the downside. Anybody? It's at 1170.00 again at 08:59:00.

 

Not bad, it went up 3 points and then reversed and declined 26 points. It's not where price is, but where price should be that makes all the difference.

[clmacdougall 11]

People say that trading isn't a science but an art. If it is an art, then it's an art which you have to make a science out of, that's for sure,

[joshdance 10]

Not bad, it went up 3 points and then reversed and declined 26 points. It's not where price is, but where price should be that makes all the difference.

 

And where should it be? And why should it be there?